India’s Nifty Futures Decline Before Central Bank Rate Decision

India’s (SENSEX) benchmark stock index rose to a one-week high on speculation the central bank will resume lowering borrowing costs after holding interest rates today. Automakers led the gains.

The S&P BSE Sensex jumped 0.8 percent to 19,325.87 at the close in Mumbai. Volume on the gauge was 15 percent below the 30-day average. Tractor maker Mahindra & Mahindra Ltd. (MM) climbed the most in two weeks after agreeing to buy 13.5 percent of Cie Automotive SA (CIE), a Spanish auto-parts maker. Bajaj Auto Ltd. and State Bank of India advanced to a two-week high.

The Reserve Bank of India maintained the repurchase rate for the first time in four policy reviews and said it would need proof of a “durable” cooling in prices to lower rates. The authority pared borrowing costs by 25 basis points each in January, March and May to arrest the worst economic slowdown in a decade, and last month said the room for rates to decline is limited by inflation risks.

“The commentary is less hawkish,” Hemant Kanawala, head of equities at Kotak Mahindra Old Mutual Life Insurance Ltd., said by phone from Mumbai. “The RBI has said that if inflation comes down, the scope for rate cuts increases. This is a change of stance because the commentary earlier was that the scope for further monetary action is limited.”

The RBI maintained the repurchase rate at 7.25 percent, a decision predicted by 15 of 25 analysts surveyed by Bloomberg News, after a drop in the rupee to a record threatened to fan prices in a nation that imports about 80 percent of its crude oil needs. The pace of consumer-price gains has stayed close to 10 percent even as wholesale-price inflation touched a 43-month low of 4.7 percent in May.

‘Monetary Action’

Today’s guidance “indicates the RBI is just looking at inflation as a data point, and if it remains subdued, further monetary action is a possibility,” Kotak’s Kanawala said.

Mahindra jumped 4.3 percent to 989.35 rupees, its steepest climb since May 30. The company will pay 96.2 million euros ($ 128.4 million) for the Cie stock. The Spanish company will own a majority stake in a single listed entity in India which will operates all Mahindra’s Systech auto-parts businesses globally and include Cie’s European forgings operations.

Fed Meeting

U.S. Federal Reserve Chairman Ben S. Bernanke and the policy-setting Federal Open Market Committee start a two-day meeting tomorrow. The Sensex has slid 3.7 percent from May 22 after Fed Chairman Ben S. Bernanke said the authority may taper stimulus efforts if the world’s largest economy improves.

“The Reserve Bank didn’t deliver anything dramatically different from what the street was expecting, and the market will now watch for cues from the Fed,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt., a unit of U.K.- based Dalton Strategic Partnership LLP that has about $ 2 billion in assets globally, said by phone from Mumbai.

The Sensex trades at 13.3 times projected 12-month profits, compared with 9.9 times multiple for the MSCI Emerging Markets Index, data compiled by Bloomberg show.

The CNX Nifty (NIFTY) index on the National Stock Exchange of India Ltd. increased 0.7 percent to 5,850.05. Its June futures settled at 5,847.75. India VIX fell 0.9 percent.

Overseas funds sold a net $ 95 million of Indian shares on June 13, a third straight day of withdrawals. That pared this year’s net purchases to $ 14.95 billion, still a record for the period, data compiled by Bloomberg show.

To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Ameya Karve in Mumbai at akarve@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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India’s Nifty Futures Decline Before Central Bank Rate Decision

Dhiraj Singh/Bloomberg

A sign is displayed at the entrance to the headquarters of the Reserve Bank of India (RBI) in Mumbai, India.

A sign is displayed at the entrance to the headquarters of the Reserve Bank of India (RBI) in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg